Jeff, Yes and yes. You definitely want to replace that flap ASAP. Without it, water can easily be forced back up through the exhaust (when you stop quickly or even if you get hit by a big roller from the back) and into the engine. If that happens while the engine is stopped, you might get hydrolock in one or two cylinders and not be able to start the engine. If the engine is running, you might get hydrolock and the inertia of the engine can bend a rod...complete rebuild.
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